SABESP Announces Tariff Adjustment

Companhia de Saneamento Basico do Estado de São Paulo or SABESP (SBS - Analyst Report) recently announced its tariff adjustment as approved by the São Paulo State Sanitation and Energy Regulatory Agency (ARSESP) on August 9, 2011.

The regulatory agency approved a tariff readjustment index of 6.83% for SABESP, which the company can apply linearly to all categories of water and sewage consumers as of September 9, 2011. The tariff adjustment announced will not be applicable to the municipalities of São Bernardo do Campo, Lins and Magda.                                 

SABESP is a public water and sewage services provider in the State of São Paulo, Brazil. The company is one of the largest players in the industry having distributed water to approximately 23.6 million people and provided sewage services to more than 20.2 million people as of fiscal year 2010.

Long-term prospects of SABESP appears bright as the company targets to provide roughly 1.3 million new water connections and 1.7 million new sewage connections, improving its sewage coverage to 90%, through 2019. Water loss ratio is expected to go down to 14% by December 2014 compared with 26% at the end of March 2011.

Moreover, the company is making a constant effort to improve its services and coverage over time. Its investment target over the 2009-2013 period would be around R$8.6 billion, with R$1,753 million intended for 2011 and R$1,748 million for 2012.

The current Zacks Consensus Estimate for the second quarter is $1.91, representing a year-over-year growth of 16.46%. Estimate for 2011 and 2012 is $5.52 and $5.67, reflecting a decline of 32.52% and growth of 2.66%, respectively.

Despite these positives, concerns over rising expenses and mounting debt levels have forced us to remain on the sidelines at current levels. Also, the company is in direct competition with its peer companies like Veolia Environnement S.A. (VE - Snapshot Report).

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